TMI Blog2015 (4) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us was that the said amount was booked under the provision for investment depreciation fund by mistake and was actually the depreciated value of the investments on its transfer from HTM to AFS securities. The perusal of the Profit & Loss Account English version reflects the assessee to have claimed the expenditure of ₹ 40,30,000/- on account of investment depreciation fund under Schedule 16 provisions. In the entirety of the facts and circumstances and the revised claim made by the assessee, we are of the view that the facts and issue needs to be relooked into to determine the nature of entry passed by the assessee and following the principles of natural justice, we deem it fit to restore this issue back to the file of Assessing Officer, who shall decide the issue de novo after considering the revised plea of the assessee and the relevant documents in this regard. The issue raised vide grounds of appeal No.5 to 7 is in relation to reversal of interest on performing assets amounting to ₹ 42.15 crores. The assessee during the year under consideration adopted a change in method of accounting in respect of interest income earned from certain performing assets. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubtedly, the assessee during the year under consideration, had made a provision of ₹ 1,31,60,000/- but the said amount was paid in the succeeding year i.e. ₹ 1,09,92,202/- on 26.09.2009 and ₹ 1,30,19,151/- on 17.12.2009. The liability being an ascertained liability, which in turn, was discharged by the assessee by making payment in the succeeding year, is an allowable expenditure in the hands of the assessee. Upholding the order of CIT(A), we dismiss the grounds of appeal raised by the Revenue. - Appeal of revenue dismissed. - ITA No.1796/PN/2013, ITA No.2085/PN/2013 - - - Dated:- 28-11-2014 - SHRI G.S. PANNU AND MS. SUSHMA CHOWLA, JJ. For the Appellant : S/Shri M.K.Kulkarni and D.V. Kotwal For the Respondent : Smt. M.S. Verma, CIT ORDER PER SUSHMA CHOWLA, JM: The cross appeals filed by the assessee and the Revenue are against the order of CIT(A)-I, Pune dated 30.08.2013 relating to assessment year 2009-10 against order passed under section 143(3) of the Income-tax Act. 2. The cross appeals of the assessee are being disposed of by this consolidated order for the sake of convenience. 3. The assessee in ITA No.1796/PN/2013 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was to be implemented by the State Govt. which amounted in fact the claim of deduction of NPA interest recognition. The appellant bank was obliged to honour the scheme which was also supported by Reserve Bank of India. The claim be allowed accordingly. 6. On the facts and circumstances of the case and in law the appellant bank has offered such interest which was claimed as deduction at ₹ 42,15,00,000/- as and when it was reimbursed to the appellant bank by the State Government. This fact was explained to Ld. CIT (A) that for this purpose the appellant Bank has changed its accounting method regularly employed by it. It was also elaborately explained that such changed accounting method has been consistently followed subsequently. In view of this no disallowance was called for. The same be deleted. 7. On the facts and circumstances of the case and in law the addition due to disallowance of ₹ 42,15,00,000/- has effectively resulted into assessment of the same income twice. The entire amount of ₹ 42,15,00,000/- was offered for taxation in subsequent years as and when the same was reimbursed by the Government and received by the Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal. ITA No.1796/PN/2013: Assessee s Appeal 5. The issue in the grounds of appeal No.1 and 2 raised by the assessee is against the disallowance of ₹ 1,94,73,302/- claimed as amortization of premium expenditure for HTM securities. 6. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is squarely covered by the judgment of the Hon ble Bombay High Court in CIT Vs. HDFC Bank (2014) 107 DTR (Bom) 140 and the decision of Pune Bench of the Tribunal in DCIT Vs. Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. in ITA No.449/PN/2012 and CO No.130/PN/2013. 7. The brief facts of the case are that, in the return of income, the assessee had claimed deduction on account of amortization of premium on government securities amounting to ₹ 1.94 crores. It was further stated that the said claim was supported by the RBI Circular / Instruction dated 13.07.2005. The Assessing Officer was of the view that the assessee had prepared the Profit Loss Account on the basis of Guidelines / Circulars issued by the RBI for banking business. As per the RBI Circular, the devolution of securities Held To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial / provisioning norms issued by the RBI under the RBI Act cannot have overriding effect on the Income Tax provisions and the said Norms or the Guidelines laid down in RBI circulars having nothing to do with computation of taxable income under the I T Act. Such classification and treatment of standard assets, sub standard assets, Non-performing assets, amortization of premium etc. are confined to presentation / disclosure in annual accounts of the bank and these guidelines cannot overrule the permissible deductions or their exclusions under the Income Tax Act. Further, reference was made by the CIT(A) to the CBDT s Instruction No.17/08 dated 26.11.2008 and vide para 3.4.3, it was observed as under:- 3.4.3. As could be noticed from the above Instruction, it only refers to the earlier guidelines of RBI on the classification of investment portfolio of banks and states that the latest guidelines of the RBI may be referred to for allowing any such claims. It is important to note that the instruction was issued prior to the decision of the Apex Court in Southern Technologies (supra), wherein it is held that the RBI Guidelines or prudential norms issued by RBI are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find an identical issue had come up before the Tribunal in the case of Nahsik Merchant Cooperative Bank Ltd. (Supra). We find the Tribunal has discussed the issue and dismissed the grounds raised by the Revenue by holding as under : 4. After going through rival submissions and material on record we find that with the advent of section 80P(4) w.e.f. A.Y, 2007-08 has closed the doors for cooperative banks for claiming the benefit of deduction u/s.80P(2)(a)(i) from this total income. However, the cooperative society should now be entitled to be assessed as normal banking company. The clause (4) inserted in section 80P has taken away the benefit of the erstwhile deduction available to cooperative society in carrying on business of banking or providing credit facility to its members. The new clause (4) inserted by the Finance Act, 2006 w.e.f. 01-04-2007 reads as under: The provision of the section was not in relation to any cooperative bank other than agricultural credit society or primary cooperative agricultural and rural development bank . 5. The intention of the provision may be derived more precisely from relevant Para 166 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s directed to allow such premium. It has also been held in the case of Catholic Syrian Bank Ltd. Vs. ACIT that amortization on purchase of Government securities was made as per prudential norms of the RBI and same was allowable deduction. In view of above, assessee was justified in contending for amortization of premium paid in excess of face value of securities held to maturity (HTM) category or period remaining till maturity was found reasonable by the CIT(A). Accordingly addition of ₹ 17,91,659/- made by the Assessing Officer by disallowing amount towards amortization of Government Securities (HMT) was deleted. This reasoned factual and legal finding of the CIT(A) needs no interference from our side. We uphold the same. 9. As a result, the appeal filed by the Revenue is dismissed . 10.1 Respectfully following the decision of the Coordinate Bench of the Tribunal and in absence of any contrary material brought to our notice against the above cited decision we find no infirmity in the order of the Ld.CIT(A) deleting the addition. Accordingly, the order of the Ld.CIT(A) is upheld and the grounds raised by the Revenue are dismissed. 2.2 Nothing contrary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in the books of account and not actually written off. Secondly, as per the CIT(A) there was no provision under the I T Act to allow such provision for amortization of premium as deduction either in the year of creation of provision or over the period of maturity of HTM securities on deferred basis. Before the CIT(A), the assessee raised a new claim that the bank shifted some of the HTM securities to AFS classification on 25.12.2008 and in the process it suffered a loss of ₹ 40,30,000/- and it was not a provision for amortization. The CIT(A) observed that the assessee has failed to furnish the details to substantiate the new claim and even in the statement of facts, it was stated that it was a provision for amortization of government securities. The CIT(A) from the annual accounts, further noted that it was only a provision for investment depreciation fund made in the books of account and do not represent actual loss or depreciation on conversion of HTM securities to AFS, hence the loss claimed by the assessee was not allowed by the CIT(A), against which the assessee is in appeal before us vide ground of appeal No.3. 15. The learned Authorized Representative for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 40,30,000/- on the said transfer of securities from HTM to AFS. Before the Assessing Officer, the assessee had not raised the said claim, however, before the CIT(A), the said claim was raised, but no evidence in this regard was filed. Now, the assessee has furnished the Resolution of the bank evidencing the said transfer which in turn, resulted in loss of ₹ 40,30,000/-. The plea of the assessee before us was that the said amount was booked under the provision for investment depreciation fund by mistake and was actually the depreciated value of the investments on its transfer from HTM to AFS securities. The perusal of the Profit Loss Account English version reflects the assessee to have claimed the expenditure of ₹ 40,30,000/- on account of investment depreciation fund under Schedule 16 provisions. In the entirety of the facts and circumstances and the revised claim made by the assessee, we are of the view that the facts and issue needs to be relooked into to determine the nature of entry passed by the assessee and following the principles of natural justice, we deem it fit to restore this issue back to the file of Assessing Officer, who shall decide the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be offered to tax on accrual basis. The Assessing Officer further noted that the assessee had changed its method of accounting of interest from mercantile to cash system only for the interest in question and for all other entries, the bank had been following mercantile system of accounting. The case laws relied upon by the assessee were distinguished by the Assessing Officer as the same were rendered prior to amendment in section 145(3) of the Act. 21. Before the CIT(A), the assessee claimed that it had introduced the change in accounting method in respect of recognition of interest on performing agricultural loans only and the change was consistently followed in subsequent assessment years. The reason for the change in accounting method was the announcement of the Agricultural Debts Waiver and Debt Relief Scheme, 2008. In view of the said scheme, the RBI declared prudential norms of income recognition, asset classification, provisioning and capital adequacy. The highlights of the Agricultural Debts Waiver Scheme are referred to under para 6.3 at pages 24 and 25 of the appellate order and the norms issued by the RBI are reproduced under para 6.3.1 on pages 26 and 27 of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of extending the benefit under section 43D of the Act to the assessee bank. It was also observed by the CIT(A) that where there was no certainty of recovery of interest when the principal amount was doubtful of recovery due to the Debt Waiver Scheme and the proper course of action for the assessee was to write off of such amount as bad doubtful debts in the books of account and claim deduction under section 36(1)(viia) of the Act. The CIT(A) has given a finding that the assessee had neither written off of the principal nor the interest was written off in the books of account and hence, claim of the assessee was not allowable under section 36(1)(viia) of the Act. 23. The learned Authorized Representative for the assessee pointed out that under section 45(2) of the RBI Act, guidelines were issued to the banks and NBFCs to regulate its business. It was further pointed out by the learned Authorized Representative for the assessee that during the year under consideration, it had changed the accounting system from mercantile to cash in respect of performing agricultural loans in view of guidelines issued by the RBI. The learned Authorized Representative for the assessee furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Madras High Court in CIT Vs. Amrutanjan Finance Ltd 15 taxmann.com 392 25. It was further pointed by the learned Departmental Representative for the Revenue that the debt waiver scheme placed at page 128 of the Paper Book is not applicable to the assessee as the assessee is a district cooperative bank and was not covered under the scheme. 26. The learned Authorized Representative for the assessee however, pointed out that it was a cooperative bank and was covered under the scheme. 27. We have heard the rival contentions and perused the record. The issue raised vide grounds of appeal No.5 to 7 is in relation to reversal of interest on performing assets amounting to ₹ 42.15 crores. The assessee during the year under consideration adopted a change in method of accounting in respect of interest income earned from certain performing assets. In the Notes to the annual accounts, the assessee declared that the interest relating to non-performing assets i.e. agricultural loans would be accounted for only on realization and interest amounting to ₹ 42.15 crores was de-reversed and de-recognized by the assessee. The explanation of the assessee for the said change in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest): (i) disbursed up to March 31, 2007 and overdue as on December 31, 2007 and remaining unpaid until February 29, 2008; (ii) restructured and rescheduled by banks in 2004 and in 2006 through the special packages announced by the Central Government, whether overdue or not; and (iii) restructured and rescheduled in the normal course up to March 31, 2007 as per applicable RBI guidelines on account of natural calamities, whether overdue or not. b) in the case of an investment loan, the instalments of such loan that are overdue (together with applicable interest on such instalments) if the loan was: (i) disbursed up to March 31, 2007 and overdue as on December, 2007 and remaining unpaid until February 29, 2008; (ii) restructured and reschedule by banks in 2004 and in 2006 through the special packages announced by the Central Government; and (iii) restructured and rescheduled in the normal course up to March 31, 2007 as per applicable RBI guidelines on account of natural calamities. Explanation: In the case of an investment loan disbursed up to March 31, 2007 and classified as non-performing asset or suit filed account, only the installments that were overdue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the lending institutions would not charge any interest on the eligible amount for the period from 29.02.2008 to 30.06.2009. However, the banks may charge normal rate of interest on the eligible amount from 01.04.2009 up to the date of settlement. The date for payment of 25% by way of single installment by other farmers eligible for debt relief of 25% Govt. of India was extended to 31.12.2009 and it was further pointed out that in case, the payment was delayed by farmers beyond 31.12.2009, the outstanding amount in the relevant accounts of such farmers shall be treated as NPAs. It was also clarified that where the farmers pay less than 75% of their share, the burden was to be borne by the banks. Further, instructions were given to the banks to make a suitable entries vis- -vis the amount to be received from the Govt. of India against the waivers scheme. 33. The case of the assessee was that in view of the above said guidelines of RBI, pursuant to the Agricultural Waiver Scheme announced by the Central Government, the assessee made suitable entries in the books of account by way of non-recognition of the interest income on such performing assets of agricultural loans. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gricultural Debt Waiver Relief Scheme by the Central Government, the assessee was to de-recognize the interest on agricultural loans which were performing assets of the assessee for the year under consideration. As per the RBI guidelines, the assessee was entitled not to recognize the interest on the eligible amount and work out the interest relatable to such eligible amount which is not to be recognized as income for the year under consideration. 34. Another aspect to be kept in mind is that in the succeeding years because of the debt waivers scheme, the assessee received sum ₹ 456.98 crores and ₹ 346.04 crores from the government during the year and ₹ 110.94 crores was received from the government in the succeeding years. The scheme related to small farmers and has been adopted by the Central Government and the payments against the same have been paid. 35. The issue which has to be decided in the present facts and circumstances, first what is the eligible amount which is governed by the debt waiver scheme of the Central Government and interest on which was not to be recognized by the assessee following the RBI guidelines. From the details furnished by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of the said claim and whether it was supported by any RBI Circular or Instruction. However, no Circular was produced during the assessment proceedings, but the contention of the assessee was that the said provision was made as per the decision of Government of Maharashtra dated 13.10.1989. The bank had made provision for Annual Contribution to Co-operative State Cadre Employment Fund as per Rule 53A of the Maharashtra Cooperative Societies Rules, 1961 and the Circular issued by the Government of Maharashtra, Co-operative Department No.1089/CR- 30, dated 13.10.1989. It was also stated that the assessee cooperative bank had made payment for the provision made for annual contribution to Co-operative State Cadre Employment Fund as detailed below:- Date Amount 26.09.2009 1,09,92,202/- 17.12.2009 1,30,19,151/- 40. The Assessing Officer was of the view that the amount debited to the fund was nothing but provision for contingent liability and the sum of ₹ 1,31,60,000/- thus, added to the income of the assessee. 41. Before the CIT(A), th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any trade, business or industry or class or classes of such corporate bodies, which in the opinion of the State Government, derives such benefit as aforesaid, and which are notified by the State Government in this behalf, contribute annually to the said Fund, at such rate and in such manner as may be prescribed. The appellant Bank is one on the notified bodies included' at S. No.6 of the table reproduced hereinabove and accordingly has made provision for annual contribution, to Co. Op. State Cadre Employment Fund as per Rule 53A of MCS Rules, 1961 and Circular dated 13th Oct. 1989 issued by Govt. of Maharashtra and it is business expenditure. It is also important to note that under sub-section (5) of Sec. 69A of MCS Act the Registrar is empowered to issue demand notice in case the society fails to pay the contribution as required by sub-section (4) of sec. 69A and such demand shall be a charge on the income of the society. The appellant bank control over the utilization of fund. A similar question came up before Madhya Pradesh court in the case of Keshkal Co-operative Marketing Society Ltd. v. CIT (165 ITR 437). In that case, the co-operative society was under the obligation t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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